FEATURE: Essential knowledge
BY MARIWYN EVANS
Turning Ideas into Profits
Tomorrow’s top strategies
5 lessons from the innovators
REALTOR® Magazine is pleased to present a special excellence in innovation series throughout 2005. This article kicks off the series, essays from scholars and well-known authors, on the elements of successful entrepreneurship.
Turning Ideas into Profits
Entrepreneurship—forging new ideas, creating viable businesses where none existed before, and reaping profits from hard work and initiative—forms a central thread of the American experience. Our children learn to admire and strive to emulate not only presidents and generals but also great innovators and entrepreneurs from Eli Whitney to Henry Ford. And emulate them we do. The Entrepreneur Next Door, a report by the Ewing Marion Kauffman Foundation, which helps support and foster entrepreneurship, estimated that in 2002, approximately 10.1 million U.S. adults were attempting to create a new business. “Participation is as common as getting married or the birth of a baby,” concludes the report.
But if entrepreneurship is central to the American character, understanding it and achieving business success through it can remain elusive.
In the year ahead, REALTOR® Magazine will explore the essential knowledge and qualities entrepreneurs need, from the perspectives of some of the country’s leading thinkers. Here, we look at what it takes to translate innovative ideas into successful business models.
“Entrepreneurship is the willingness and ability to strike out on your own and do something better, faster, or cheaper,” says Peter D. Linneman, the Albert Sussman Professor of Real Estate at the University of Pennsylvania’s Wharton School and founder of Linneman Associates in Philadelphia. In many ways, says Linneman, real estate is a prototype of the entrepreneurial business. A real estate developer combines vision and determination to fuse construction, financing, and marketing and create a skyscraper on a vacant lot. In a similar way, more than 1 million residential brokers and salespeople daily seek to differentiate themselves in the market and carve out their share of business success.
For many, including perhaps the 20th century’s most renowned business guru, Peter Drucker, innovation is a fundamental component of entrepreneurship. In his seminal work Innovation and Entrepreneurship (HarperBusiness, 1993) Drucker says, “Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth.”
For Drucker, as for many of today’s entrepreneurship thinkers, innovation is not about the sudden thunderbolt of a new idea. Instead, it’s a systematic process of analyzing products, processes, and markets to find needs that are not being met and problems that require solutions.
“People think of innovation in terms of new products, but often, it’s more about growing by improving processes, procedures, or market positioning,” says Scott Anthony, a partner in Innosight LLC, a Boston-based consulting company that helps corporations manage change. Achieving this type of innovation requires an outward focus, says Anthony, who co-authored with Clayton Christensen the just-released Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change (Harvard Business School Press, 2004). “Instead of looking to your own ideas—look toward external sources in other industries as well as your customers.”
“Many times, people don’t even know there’s a need. You have to give yourself the opportunity to stand outside the way things have always been done and identify what those needs are,” says Robert Wolcott, co-founder of the Kellogg Innovation Network at the Center for Research and Technology at Northwestern University in Evanston, Ill.
Innovation can also occur through market “disruptions,” says Michael Raynor, director of Deloitte research and co-author with Christensen of The Innovator’s Solution (Harvard Business School Press, 2003). For new companies trying to enter a market, disruption can be a powerful tool for growth. Disruptive innovations start off as products or services that appeal to consumers who are happy with less. For example, says Raynor, Toyota entered the U.S. market in the 1950s with a very poor quality car. Owners of higher-end Ford or GM products weren’t interested, so Toyota’s initial customers were people who had previously bought a used car or no car at all. Building from that initial foothold, Toyota was able to disrupt established manufacturers by gradually improving car quality to the point where today Toyota enjoys a reputation for exceptional quality. Disrupting “on purpose” requires a willingness to offer seemingly low-quality products that connect to a genuine customer need. Most companies, however, strive to constantly improve a product. “In some cases, that striving paints companies into a corner because customers don’t really want to pay for all the services they provide,” says Raynor.
Another way to approach disruptive innovation is to stop thinking about how you provide a product or service and start thinking about what function the customer wants to “hire” this service to do. For example, says Raynor, real estate practitioners often specialize in a certain geographic area, while many prospective buyers may care less about living in a particular area than in finding a home that is 30 minutes from work, has a school with small class sizes, and has a nearby sports facility. “The basis of the theory is to look at markets and customers through a different sort of lens, to give people not more of the same, but something different,” he says.
Although innovation and entrepreneurship are often intertwined, new ideas do not always lead to entrepreneurial success. “Sometimes an innovation isn’t commercially viable and leads nowhere,” says Andrew Zacharakis, acting director of the Arthur M. Blank Center for Entrepreneurship at Babson College in Babson Park, Mass. “Entrepreneurship is not just identifying an opportunity but executing on that opportunity successfully.”
“Trying to decide between too many ideas is costly and slow and leads to mistakes. That’s why the failure rate for new businesses is 95.5 percent,” says Larry Keeley, president of Doblin Inc., a Chicago-based consulting company.
“The three most important skills for an entrepreneur are focus, focus, and focus. If you only have five people working on a project, you can’t try 25 things,” agrees Wolcott.
To translate ideas into a working business requires careful diagnostics, says Keeley. “Once you’ve seen what’s missing in a market—what’s wasting people’s time or upsetting them—you have to weigh that against what you’re good at and what you can execute quickly and cheaply.”
“I tell my students to concentrate on how they’re going to get their first five sales,” says Ian MacMillan, director of the Sol C. Snider Entrepreneurial Research Center at the University of Pennsylvania. “If they don’t know how they’re going to get there, they may not have enough money to keep their businesses operating.”
Occasionally it may not even be necessary to innovate to succeed, says Wolcott. Success may come by adapting an idea from another market or industry to a locale or niche where it hasn’t been tried before.
“Imitating a good idea and adding a twist can be very entrepreneurial,” agrees Linneman, who points out that McDonald’s founder Ray Kroc imitated the Howard Johnson model of a national product quality standard, focusing on burgers instead of beds.
Can entrepreneurship be learned? Yes, say some experts, up to a point. “Any skill can be taught, but you can’t create a great entrepreneur any more than you can create a great pianist or a great basketball player. There has to be that extra energy,” says Linneman.
“Entrepreneurs have to be willing to take risks, but those risks have to measured and intelligent,” says Robert Saunders, senior managing director of Chrysalis Ventures LLC and winner of an Ernst & Young Entrepreneur of the Year Award for support of entrepreneurship.
Two qualities of the entrepreneur that can’t be taught are tolerance for ambiguity and internal locus of control—the sense that you are in control of your destiny, says MacMillan. “If you don’t have these, you’ll have a tough time starting and sustaining a business.”
Perhaps it’s this sense of self—this willingness to both remain aware of the world and retain your own sense of your place in it—that sets the entrepreneur apart.
Tomorrow’s top strategies
If you’re a budding real estate entrepreneur, perhaps one of these innovative ideas will help you make it to the top.
RSS: This simple XML format, which some contend stands for really simple syndication, is widely used by newspapers and online content providers to send out headlines to subscribers. But the inexpensive technology also holds great potential as a way to keep sales associates abreast of the latest listings, says Mark Lesswing, head of the NATIONAL ASSOCIATION OF REALTORS®’ Center for REALTOR® Technology. “Connecting RSS technology to an existing MLS database would enable us to record preferences and push out new listings as they’re entered,” says Mike Delamater, systems administrator for the Mississippi Association of REALTORS®. He says the low-cost technology could easily replace an association’s daily “hot sheet” of listings.
Blogs: Blogs, short for Web logs, may have gotten their start as online diaries for Internet-addicted teens, but this Web-based variation on instant messaging can also be a powerful marketing tool, says Kevin O’Keefe, president and founder of Lexblog. The year-old company was founded when former attorney O’Keefe began to dabble in personal blogging and recognized how a blog filled with useful consumer information instead of personal trivia could translate into a powerful marketing tool. Today, O’Keefe gets 4,000 unique visitors each month to his blog. “A blog gives you the credibility of a personal publishing platform for a fraction of the cost—$200 or $300—of traditional print methods,” says O’Keefe. The high content level of these tailored blogs also puts them near the top of search engines, says O’Keefe. “Blogs can be a great marketing tool, but it’s often difficult for time-pressed real estate practitioners to post weekly,” says REALTOR® Magazine tech columnist Michael Russer. Russer suggests considering a ghostwriter if you want to venture into blog marketing.
Purple cows: If you want to stand out like a purple cow in a herd of Holsteins, you need to do something remarkable, says marketing guru Seth Godin, author of Purple Cow: Transform Your Business by Being Remarkable and Free Prize Inside: The Next Big Marketing Idea. By remarkable, Godin means something to be remarked on, something completely unexpected and out of the ordinary—like a purple cow. For example, says Godin, suppose you give every person who buys a million-dollar home a flat screen TV. Whenever people admire the set, they’ll get the story and remember you. Nor does the remarkable event have to be costly. “Imagine three plumbers who come into the house to give you an estimate. Even though it’s not raining, one takes the time to put protective booties on his shoes. Who would you hire?” One way to achieve this desired market differentiation is through what Godin in his latest book of the same title calls a “free prize inside.” “JetBlue doesn’t get you to your destination any differently than other airlines, but the personal TV monitors on every seat set it apart. That’s the prize inside,” Godin says.
Game theory: Based on an economic theory that won the 1994 Nobel Prize in economics for its creators, the strategic prediction of behavior that forms the basis of game theory makes it a valuable negotiating tool in business and in life. It can also be a good tool for directing advertising and creating product niches.
“Game theory looks at how the outcome of your decision depends upon the responses of other people,” explains Stephen Cauley, director of research at the Richard S. Ziman Center for Real Estate at UCLA’s Anderson School of Management. Cauley, who teaches game-theory strategic thinking to MBA candidates, says that in its simplest, sequential form, strategists approach negotiations using “a game tree,” on which all possible responses for each party are weighted by their probability and their benefit to each party. The technique enables strategists to predict an opponent’s future moves, then to reason backwards from their own desired outcome to decide on the best negotiating tactics, explain Avinash Dixit and Barry Nalebuff in Thinking Strategically (W.W. Norton & Co., 1993).
The support economy: The shift over the last 50 years toward a society in which individuals view themselves as psychologically unique has required businesses to radically alter the adversarial relationships they’ve had with customers, say Shoshana Zuboff and James Maxmin, authors of The Support Economy (Viking, 2002).
Today’s consumers want a cooperative environment in which businesses help them enhance their quality of life by acting as their advocates and bundling services. Technology is already making steps toward this support economy possible. One example is the use of simple, self-administered in-home tests and online medical diagnoses being tested by the National Health Service in the United Kingdom. Real estate professionals are in an ideal position to offer what the authors call “federated services.” What may simply sound like concierge service is much more, say Zuboff and Maxmin. Instead, the goal is to establish a long-term relationship and serve as the central facilitator of one range of activities in a client’s life.
5 lessons from the innovators
Companies that have successfully translated innovation into entrepreneurial business models share their secrets.
1. Let customers drive your innovation. Intuit’s Quicken was conceived by founder Scott Cook when he saw his wife painstakingly paying her bills by hand. The idea of watching and listening to customers instead of presupposing that you understand the market is still a central tenet of Intuit’s strength, says Raymond Stern, senior vice president of strategy. Intuit tests products with a “follow me home” strategy in which employees go to the homes of purchasers or prospects, observe their use of the product, and ask open-ended questions about “the biggest pain points in the process.” Both the Mountain View, Calif., company’s small business accounting package, Quickbooks, and its latest product, Quicken Rental Property Manager, mirror this customer-centric approach.
2. Respond to specialized customer needs. For most companies, a computer chip is a computer chip. But in 1997 Tensilica’s founder Chris Rowen recognized that for more advanced applications, one size doesn’t fit all. By developing a computer program that allowed software engineers to customize chips for specialized needs such as video, the company carved out a profitable niche in a highly competitive market. “Not everyone needs this much customization, but for the extreme applications, our programs enable designers to create just what they want,” says Paula Jones, director of corporate communications for the Santa Clara, Calif., company.
3. Don’t try to be all things to all people. Rather than launching itself as just another full-service online bank, ING Direct, based in Wilmington, Del., decided to focus on the foundation of financial services—the savings account. By specializing in mid-range customers and combining streamlined quality services, high interest rates, and real people at the other end of the help line, the retail banking arm of Amsterdam’s ING Group has built its U.S. and Canadian base to 2 million customers in less than four years. “We focused first on the savings account because it’s a product that almost everyone has experience with,” says Jim Kelly, the company’s chief customer service officer. Today, the company has expanded its offerings to three more core products—home loans, certificates of deposit, and mutual funds.
4. Become the industry resource. Even though he holds a patent on a filtration system that keeps landscape ponds clean and is one of the largest manufacturers of commercial pond kits in the country, Greg Wittstock, president and CEO of Aquascape Designs Inc. in Batavia, Ill., knows that customers don’t care about the mechanics. That’s why Wittstock—who’s become know as “The Pond Guy”—publishes an aquatic lifestyles magazine and maintains an extensive Web site of photos and design ideas to educate both consumers and landscape professionals. “I partner with my customers and help them put all the pieces together. I believe in working from abundance, not scarcity. If you help other people get what they want, you succeed,” says Wittstock.
5. Make convenience your byword. If you’ve ever sat for hours with a sick child waiting to see a doctor, the appeal of the guaranteed 15-minute waiting time at MinuteClinic needs no explanation. The company was founded in 2000 by a Minneapolis father after just such an experience. Its 70-square-foot kiosks in department and grocery stores provide quick diagnosis and treatment for 17 common ailments.
Proprietary software aids the family nurse practitioners in diagnosis and treatment. Technology also permits on-the-spot billing for either an insurance co-payment or cash. “One person completes the entire visit. It’s very high-tech and very high touch,” says CEO and President Linda Hall Whitman.
